Fractional Ownership News

Virgin Islands fractional resort halted by legal wrangle

Pond Bay, a $100 million fractional ownership resort in the US Virgin Islands has been hit by legal problems, as the project's developer and its bankers sue each other.

According to a report in Hotel Online, the St. John Coastal Zone Management Committee has refused to allow a German bank to transfer the Pond Bay Club resort's CZM permit to a new owner if the bank forecloses on the property and decides to sell it. The CZM committee said the request should have come from the permittee, not the bank.

Construction is on hold at the resort, which will include 50 three-bedroom units with no more than four units in each two-storey building. The project also will have its own reverse osmosis plant, swimming pool, parking spaces, a spa and fitness centre, restaurant and bar. The first phase of construction was more than halfway finished before work stopped.

The bank, WestLB AG, and First American Development Group are currently suing each other in both federal and local courts. Developer Bob Emmett said the group borrowed $62 million from the bank in the first phase of financing. He said they had an agreement to negotiate the next financing package, but in the global financial crisis, the state-owned German bank was restructured and the bank refused to negotiate additional lending.

Emmett said the financing package was negotiated with a luxury hospitality lending unit of the bank based in New York, which was disbanded in the restructuring. "It was time to go back in and negotiate with the bank, but it turned out there was no one to negotiate with."

The developers stopped paying the interest owed on the mortgage and sued for lender liability. The bank then sued First American Development Group for defaulting on the loan and is now trying to foreclose on the property. Both lawsuits are pending.

According to an analysis done by the V.I. Department of Planning and Natural Resources staff, in the original agreement between WestLB AG and First American Development Group, the developers pledged all permits related to the property as security for the loan. "However, the permittee never sought the committee's consent to the pledge of this permit," the report stated.

The bank itself requested the committee's consent several months ago, but the matter was tabled by the committee in October. They revisited the request last week, and unanimously voted to deny it.

Committee Chair Madaline Sewer said getting permission from the committee to pledge the permit should have happened when the developer first applied to CZM. "We don't know who dropped the ball," she said. Regardless, Sewer said the St. John CZM Committee decided as a group that they should not be involved with the developer's financing dispute. "That's not the responsibility of the CZM."

Sewer added that the developer can halt the construction for only 120 days before the permit becomes null and void. If that happens, First American Development Group would have to reapply for their CZM permit to continue construction. If the courts grant the bank the right to foreclose, the property will most likely be sold and a new owner would have to apply for a new CZM permit to finish the job.
Emmett said they have to settle the matter with the German bank first, but they are currently seeking out new financing options and plan to complete the project. "We're intent on finishing the project the way it was originally approved," he said.

http://www.holidayhomesvi.com/pond_bay_club.php

07/01/10
 

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